Airport Leases–Five Things Aviation FBO, MRO and ACM Service Providers Need To Understand About Their Lease

It may sound simple, but understanding (and managing to) the specifics of your airport lease is critical for the airport service provider. Whether you are a Fixed Base Operator (FBO), Maintenance, Repair and Overhaul (MRO) company or an Aircraft Charter and Management (ACM) company, if you provide direct on-airport service your lease is your not only your life blood and access to your customer base, but it is also a big component of your company’s value.

Aviation service providers generally work under lease directly from the airport itself. Most leases are long term in order to afford the tenant (the aviation FBO, MRO or ACM company) the ability to achieve a return on the investment they must make to establish their business. Leases usually also confer the operating rights and restrictions under which the service provider must operate. Because they have long lives, however, and are not referred to often in the day-to-day provision of airport services, the opportunity for confusion arises and mistakes can compound for months or years until discovered and corrected. There are numerous examples of rent disputes that arose from a misunderstanding of the rent calculation only to compound for years until finally reconciled, many times with the service provider taking a material charge to their profit and loss statement.

  1. Rent Calculations. Obviously, most airport tenants are deeply aware of the amount of rent they pay to the airport on a monthly basis, either for ground rent or facilities. Unlike a typical office or other facility lease, however, an airport lease may require additional variable rent payments based upon activities. There are many types and structures but common types of variable rent are fuel flowage fees, a variable rent as a percentage of gross sales, additional rent in the form of recoupment from tenants of fees and taxes an airport incurs, etc. Since these are variable they are typically paid monthly by the tenant but only reconciled annually. Because FBOs typically have the most different lines of businesses, they are especially inclined to have additional variable rent structures. Diligent management and clear communication with the airport (as well as mutually agreed upon reporting tools) are best practices for preventing an unintended consequence from building up on either side of the ledger.
  1. Operating Rights & Restrictions. Airport leases typically clearly state which activities a tenant may conduct (or is required to conduct) and activities from which they are prohibited. These categories vary however, from very narrow to quite broad depending upon the intent of the airport; e.g. is the airport trying to tightly manage scarce resources or is it attempting to broadly stimulate growth and employment on the airport. In the modern hurried environment it is easy to contemplate adding a new service or product line without first determining whether that service or product is specifically allowed or prohibited under your current lease. You should always clearly understand your contractual rights and restrictions before making a commitment to a material outlay of resources, especially in the areas of time, personnel and capital.
  1. Maintenance & Repair. The maintenance and repair responsibility for your facilities will largely depend on who constructed them and who now holds title to them. In some cases the facilities will be let “where is, as is” and the tenant will be responsible for all maintenance and repair. Other times there are specific levels of maintenance the airport landlord may provide (e.g. “structural”) and the tenant will be responsible for others that do not rise to this level. Open communication with the airport is again the best tool for understanding who is going to pay for the next large repair issue.
  1. Lease Premises. Similar to rent, above, this appears straightforward and usually is. An older lease which has been subject to multiple amendments and assignments through multiple owners, however, may be tricky. If you purchased the lease as part of a larger aviation services business and bought title insurance at that time you should have assurance as to the exact location, size and characteristics of the leasehold. If you acquired the lease through other means such as a Request For Proposals process, you should examine the description of the premises in the lease and ensure it is consistent with your understanding and current aviation operations and activity. If there is doubt or ambiguity as to what and where the actual leasehold is, you should seek help understanding exactly what your rights are respective to the leasehold.
  1. Transfer and Change of Control. This is another area which can materially affect the value of an aviation service provider’s business. Most leases require a landlord’s (airport’s) consent to transfer a lease (as an asset) via an assignment (although it is common to have exceptions for transfers to entities that are subsidiaries or controlled by the current tenant). A change of control, which occurs when a tenant conveys more than 50% of the underlying interests of the business to another individual or entity, usually also requires a similar consent. This language varies from lease to lease of course and is less common in older leases. You should review this language in your lease and determine the consequences before you begin planning to sell your business as it may have a material impact on your sale process, especially if you are selling only a part of an airport based service business. There are different strategies to use in dealing with these types of provisions, however, and the best practice is to structure your business or sale process taking these provisions into account and aligning the structure of the process to meet your end goals.

Airport leases for Fixed Base Operators (FBOs), Maintenance, Repair and Overhaul (MRO) companies and Aircraft Charter and Management (ACM) Companies have evolved and become more complex, especially at larger airports, and the aviation infrastructure required to perform these services continues to become more expensive. To maximize your return as an operator, you have to have a complete understanding of one of your most important governing documents, your airport lease.

About Global Aviation Infrastructure

Global Aviation Infrastructure is a leading aviation management company which provides Fixed Base Operation (FBO), Maintenance Repair and Overhaul (MRO), Aircraft Charter and Management (ACM), and aviation infrastructure management for aviation asset owners, corporations, airports, private equity firms, family offices and financial institutions. For more information please visit www.aviationinfrastructure.com

For more information contact

Steven Levesque, Principal

+1 (843) 412-6881

 

 

National Business Aircraft Association Convention Nov. 1-3 Orlando, Florida

https://www.nbaa.org/events/bace/2016/

Please visit http://www.aviationinfrastructure.com or email slevesque@aviationinfrastructure.com to set up a meeting at this year’s convention.

Aviation Operations and Infrastructure Management in India

Steven P. Levesque of Charleston, SC was the project manager and executive in charge in early 2007 under a Professional Services Agreement to assist in an investment made by a New York based private Equity firm into the leading provider of general aviation services in India

  • The Indian aviation services company is the oldest provider of general aviation maintenance, repair and overhaul services in India dating back to 1951 and, in addition to that brand equity, with the growing popularity of general aviation on the subcontinent, private equity firms felt there was great opportunity to bring western-style operational best practices in order to meet this implied demand
  • The company was owned by a Mumbai family which did not possess the resources to expand the operation throughout the country and also desired to import western style best management practices in order to best position the company as a premier service provider

 

Advisory Area 1 – Advise on the transaction

  • This was intended to be a three month project leading up to the closing of the investment however several external factors, including the introduction by Indian aviation company of an additional investor delayed the closing
  • Performed financial & operational diligence performed
  • During that time though, Mr. Levesque provided assistance with all financial and operational modeling and due diligence review including:
    • site inspections of facilities in Mumbai and Hosur
    • Determination of those non-core assets and business units which should be shed immediately post-closing to streamline the operation

Advisory Area 2 – Recruit and negotiate employment contracts for key management

  • Levesque led the process of identifying which key executive level position were required in the operation as well as the sourcing of those individuals
  • This included negotiation of employment contracts with the CEO of the commercial airline maintenance division and identification/interview of several candidates for CEO of the general aviation services division
    • This was done both through polling of Mr. Levesque’s network of executives within the general aviation industry as well as use of several executive recruitment firms

Advisory Area 3 – Business Plan Development

Mr. Levesque completed both a review of all the lines of business currently performed by the company and an assessment of the appetite for new lines of business

  • This included identification of a major aircraft manufacturer to partner with for an aircraft sales division as well as a US based maintenance provider with whom to partner
    • Levesque developed the marketing plan for the aircraft sales division and, through its network of contacts, received manufacturer buy-in at the senior management level
  • Oversaw the upgrading of both the work order and general ledger information technology systems and their full integration
  • For the first time in its history the company procured $50 million of aviation liability insurance through the advice and consultation of Mr. Levesque
  • Led negotiations at India’s three largest airports for long term lease rights to conduct services including but not limited to commercial airline handling, commercial and general aviation fueling, commercial and general aviation Maintenance, Repair and Overhaul (MRO), Aircraft Charter & Management (ACM) and other ancillary services

Advisory Area 4 – Operational restructuring to Western-style best practices

  • Levesque was able to achieve the following major milestones during the engagement:
    • Identification of and plan for the “demerger” of several non-core and underperforming business units
    • Initiation of discussions and negotiations with major manufacturers to obtain service center designations and expand service offering:
      • Gulfstream, Dassualt, Hawker Beechcraft and Honeywell were among the OEMs whose designations were received
    • Development of job specifications for all new executive positions
    • Development of general ledger and work order systems for proper management and financial reporting
    • Implementation of a robust insurance program that covers the operation beyond its traditional “India-focused” policies to facilitate service center designations with major manufacturers

 

 

Steven Levesque of Charleston Retires from the U.S. Navy Reserve

Commander Steven P. Levesque of Charleston, SC recently retired from the U.S. Navy and Navy Reserve after 25 years of commissioned Service. After being commissioned from the University of North Carolina Naval Reserve Officer Training Corps in 1989 he served aboard USS CARR (FFG-52) during two Middle East Force deployments and multiple counter narcotics operations. Transitioning to the U.S. Navy Reserve he served as the Logistics Officer for Mobile Inshore Undersea Warfare Units 207 and 205, as the Operations Officer for NCHB-4, and as a Staff Action Officer for U.S. Joint Forces Command.

In December 2006 he assumed command of Navy Cargo Handling Battalion Thirteen (NCHB-13), an expeditionary combat logistics unit headquartered in Gulfport, Mississippi with detachments in Houston TX, San Antonio, TX, Fort Worth, TX, and Springfield MO. The unit is assigned to Navy Expeditionary Logistics Support Group, Williamsburg, VA and its mission is to provide a wide range of expeditionary logistics and transportation support critical for combat service support missions, crisis response, humanitarian, and peacetime support. He completed his command tour in December, 2008.

Commander Levesque earned the Surface Warfare Supply Corps Officer designation, and his awards include the Meritorious Service Medal, Joint Service Commendation Medal, the Navy Commendation Medal with two gold stars, the Navy Achievement Medal with one gold star, and various campaign and deployment ribbons. He resides in Mount Pleasant, South Carolina with his wife Melissa and son George.

NATA to Hold 2016 Aviation Business Conference in June

 National Air Transportation Association pic
National Air Transportation Association
Image: nata.aero

Aviation industry executive Steven P. Levesque recently left Hawthorne Global Aviation Services to launch Global Aviation Infrastructure, LLC, in Charleston, South Carolina. In addition to his professional endeavors in and around Charleston, Steven P. Levesque maintains memberships in several trade groups, including the National Business Aircraft Association (NBAA) and the National Air Transportation Association (NATA).

NATA members from across the country will soon come together for the organization’s 2016 Aviation Business Conference, which will be held June 8-10 in Washington, DC. Over the course of the three-day event, attendees will have the opportunity to take part in several activities, including a welcome reception, an awards ceremony, and a networking luncheon.

Another highlight of the business conference will be the Congressional Reception on Capitol Hill, where NATA members will meet face-to-face with members of Congress to advocate for the aviation industry. The event will also feature several prominent speakers and a number of exhibiting companies who will showcase the latest industry products and services. For more information, including registration and housing details, visit www.nata.aero.

Global Aviation Infrastructure, LLC

Charleston, South Carolina Image: charlestoncvb.com
Charleston, South Carolina
Image: charlestoncvb.com

 

Global Aviation Infrastructure, LLC, was recently founded by Steven P. Levesque, a Charleston resident with a long history of aviation-industry experience. Steven P. Levesque previously led Hawthorne Global Aviation Services.

His aviation background dates back to 1995, and he has served in numerous leadership capacities in the last 20 years. Highlights include CFO of an $850 million revenue aerospace company and most recently serving as CEO of a new general aviation services company and Fixed Base Operation (FBO) platform with capabilities in aircraft Maintenance, Repair and Overhaul (MRO) and Aircraft Charter and Management (ACM). Steven Levesque’s international experience includes development and management projects in India, Europe and the Middle East.

Global Aviation Infrastructure LLC, provides management and advisory services for corporations, airport sponsors, and private equity firms and financial institutions. Focus areas include development and operations of airport infrastructure in the FBO, MRO and ACM areas as well as the development of airport facilities. Steven Levesque leads the company from Charleston, South Carolina.

An Opportunistic FBO-Centered Growth Strategy at Hawthorne Corp.

Hawthorne Global Aviation Services pic
Hawthorne Global Aviation Services
Image: hawthorne.aero

Steven P. Levesque is a respected Charleston, South Carolina, executive who recently founded Global Aviation Infrastructure, LLC. In his leadership role, he draws on extensive experience leading Hawthorne Global Aviation Services. As reported in AviationPros in 2012, Steven P. Levesque led Hawthorne’s recent Fixed Base Operations (FBO), Maintenance Repair and Overhaul (MRO) and Aircraft Charter and Management (ACM) growth.

Joining Hawthorne in 1995, Steve P. Levesque took on positions of increasing responsibility and helped diversify the company in its operations at various airports. He served as CFO of Piedmont Hawthorne when was an $850 million revenue company. In 2011, he was integral in launching the firm’s latest fixed-base operator (FBO) effort, in coordination with a private equity partner. FBOs provide essential services such as aircraft hangaring, ground handling, and refueling.

Hawthorne’s FBO business was opportunistic in nature, with the company seeking out second-tier growth airports, which are less expensive to build operations at than major U.S. airports and offer the opportunity to quickly ramp up services.